One of the biggest growth drivers of the public relations consultancy market has been sectoral and geographical complexity of earned media. In the last few years several business requirements moved beyond the point where a specialised PR counsel had to step in, and general PR services just wouldn’t do. Consequently, a lot of new PR firms that started were dedicated to specialised areas of operations. Budding entrepreneurs of PR knew this as well – If you’re starting up a PR firm, you need to differentiate and you can either differentiate in market or services. Such specialised services, thanks also to compartmentalisation of media platforms, has played a crucial role in making earned media more accurate.
But a greater way in which these Niche PR firms have been definitive to the profession is that they have propelled the M&A space in the last several years. The desire to access markets and capabilities has made larger firms realise that they are often easier acquired than built. Indeed several firms originating in Niche areas do so with the intention to eventually find a buyer. That is the end game for not just their founders, but a natural ceiling for specialised consultancies as well.
The degree of M&A activity depends on liquidity – what is readily available to be borrowed and what is potentially available to be made via such acquisitions. This is perhaps a part of the reason why in the recent past independent PR firms have led a large chunk of M&As. In a global perspective 59% of the M&As that the Holmes Report studied were by independent PR firms.
The reasons for such acquisitions are also interesting to note. They’re not doing it to add bells, whistles or trophies. They’re looking for partners who will run the firm alongside them, if not for them. Access to human capital is harder to come by than access to healthy balance sheets. Specifically – human capital that exhibits disruptive yet flexible attitudes. Such firms did not necessarily belong to PR consultancy domain either. In the past year several acquisitions were of firms bringing new-age tech and data analytics capabilities.
For instance, in early 2015 Adfactors PR announced their acquisition of Yorke Communications, who specialise in content strategies. This merger has gone on to strengthen Adfactors’ content delivery capabilities – a value of increasingly paramount competitive importance. Yorke CEO Peter Yorke explains that they’ve consciously built this strategic capability, saying, “The demand explosion for rich content is a strategic opportunity that we wish to leverage, across all platforms. A partnership with the market leader will certainly help us scale up our combined offerings. Over the last six years, we have serviced more than 95 satisfied customers with content, created through careful research, audience targeting, meticulous planning and precise orchestration.”
The nature of the business ecosystem also defined the firms that became the ideal targets. The start-up wave brought in not only the need for expertise in the sector, but also an ability to work with the entrepreneurial mind-set.
It is a tricky activity for the buyer. It is a question of how much cultural dilution they are willing to make in exchange for such human capital. Beyond financial or legal due diligence comes this very crucial aspect. Alignment of business is qualifier for a target, but cultural alignment tends to determine how the target is valued. Ultimately, its not enough to find synergistic value exchange, but to also proactively ensure that it happens institutionally.